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Financial Services Authority (FSA) was one of the first jurisdictions to recognise rolling forex contracts as a derivative product, with investors having no intention of touching the physical currency. But it brought a light touch to these contract for differences and NDFs.


Te European Union’s MiFID (Markets in Financial Instruments Directive) and the Dodd-Frank Act both set out to regulate off- exchange deals, especially those involving derivatives.


“Te biggest change in the US legislative landscape came in 2010 with the Dodd-Frank federal statute which gave the Commodity Futures Trading Commission (CFTC) the broad authority in the regulation of off exchange retail foreign exchange transactions,” says Felix Shipkevich, Principal at Shipkevich PLLC, a New York attorney specializing in FX, derivatives and commodities regulation.


“Most FX brokers generally will go to the the self-regulating National Futures Association (NFA) which the CFTC oversees and they now both require that an online forex broker doing business for US-based customers must be registered with the CFTC as a futures commission merchant,” adds Shipkevich. Tere is also a new category of registrant called an RFED or retail foreign exchange dealer.


Te rules have tightened too on handling clients money and while brokers were not allowed to use client’s funds to carry out their activities, now if they operate pooled trades or solicit orders,


amongst other things, they need to be registered with the CFTC as either an associated person, an introducing broker, a commodity pool operator or as a commodity trading advisor (CTA).


“Apart from the call for stricter vigilance after the banking crisis, the major drive in the US industry has evolved from dealing with fly-by-night operators in the industry and years of fraud, and this stricter monitoring has been brought on themselves,” observes Shipkevich.


Cyprus


Tis sort of industry reputation is why many brokers are seeking jurisdictions with better regulation and one with an authority that understands the forex business. For Stelios Platis, geography, low operating costs and low taxes help Cyprus, but being able to provide an attractive and solid regulatory environment is critical.


“Now Cyprus is seeing a lot of interest from the Middle East and Asia to set up FX brokerages here – up 45% year-on-year - and that is partly because of Cyprus’ use of EU regulations, but also having a regulatory authority that understands the business,” he says.


Te growth of FX in Middle Eastern countries is understandable – retail business is growing exponentially in the Gulf States – but others regional areas have faced a regulatory clampdown. In 2008 the Jordanian government enacted a new law regulating the trading of currencies on the internet after high numbers of people went bankrupt, suffering big losses in currency trading with foreign markets.


Dr Stelios Platis


“Cyprus is seeing a lot of interest from the Middle East and Asia to set up FX brokerages here – up 45% year-on-year - and that is partly because of Cyprus’ use of EU regulations, but also having a regulatory authority that understands the business,”


“Turkey too has clamped down on regulations for FX and in Lebanon the authorities have been imposing higher and higher capitalisation requirements on FX brokers,” says Platis.


He points out that it was not only the standard of rules, but their implementation, “As a firm, we helped regulators understand the sector very quickly with the implementation of MiFID and worked closely with CySEC (Cyprus Securities and Exchange Commission), in this respect” he adds.


Tis, he says, also helps with the speed of getting a license. He


INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013 | 15


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